Reserve Bank Governor Urjit Patel says that in order to improve the present situation of the banking sector and to deal with the problem of non-performing assets (NPA), public sector banks should be merged.

While delivering the Kotak Family Distinguished Lecture at Columbia University on Monday (April 25), he asked, “Do we need so many public sector banks?”

“It is better to consolidate them into fewer banks,” he said.

He further added, “Some of these banks can be merged in return for government assistance in taking care of the NPA problem and this would also make them more efficient.”

According to him there was already a trend in that direction.

Urjit Patel said, “The weaker banks are losing market share (and) that is a good thing. The stronger banks are gaining market share, which is a good thing, particularly the private sector banks. In a way it is working; those who need to shrink are shrinking.”

“Lenders who are stronger are gaining more market share,” Patel said. He added further, “I think there is a nice shift happening and we need to work with that to resolve this.”

The RBI governor stressed that the merger of banks would lead to savings through consolidation of bank branches and operations.

Patel also said that divestment in public sector banks would have a positive role for the sector.

Urjit told, “Improved market valuations will create an opportune time for the government to divest some of the ownership in the restructured banks and this will reduce the overall amount that the government needs to inject into them to deal with the NPA problem.”